Mumbai: With a career bureaucrat at its helm once again, the Reserve Bank of India is seeing a flurry of committees being set up as it tries to become a more “consultative" regulator.
In the six months since Shaktikanta Das took over as its governor on 12 December 2018, the central bank has announced as many as 10 committees that are meant to look into a wide range of subjects—from liquidity management and ATM charges to digital payments and corporate loans. The most closely-followed is the committee headed by former governor Bimal Jalan to identify the quantum of excess capital the central bank holds.
The latest is a committee on ATM interchange fee structure, with six members headed by Indian Banks’ Association (IBA) chief executive V.G. Kannan.
ATM interchange is the charge paid by the bank that issues the card to the bank where it is used to withdraw cash. While the card-issuing bank is called the issuer, the latter is called an acquirer. This charge is divided between the acquirer and the company maintaining the ATM, which is why banks discourage customers from using other banks’ ATMs. This fee has been a bone of contention between banks and ATM deployment companies, with the latter seeking a hike in the fees to ₹18 per transaction from ₹15 at present.
According to Navroz Dastur, board member of industry body Confederation of ATM Industry, the cost of managing and running an ATM channel has risen, prompting calls for the interchange to be hiked.
“Earlier, the interchange was dictated by a set of lenders who did not want to pay more interchange to the acquiring bank. However, since this committee constituted by the RBI has wider industry representations, I am hopeful that our demands could be met," said Dastur.
Then there is a committee on development of a secondary market for corporate loans. Set up on 29 May, this one is led by Canara Bank chairman T.N. Manoharan. According to RBI, the secondary loan market in India is largely restricted to sale to asset reconstruction companies and ad hoc sale to other lenders, including banks, without any formalized mechanism having been developed to deepen the market. “A vibrant, deep and liquid secondary market for debt would go a long way in increasing the efficiencies of the debt market in general and would aid in resolution of stressed assets in particular," the central bank said.
IBA’s Kannan, part of two new committees, said Das and his team are open to meeting all stakeholders and open to suggestions. He said the new governor gives a hearing to industry concerns before going ahead with a policy decision. “For instance, we had requested certain changes to the 12 February circular on resolution of stressed loan and some of them have been reflected in the revised circular of 7 June," said Kannan.
After the Supreme Court struck down the central bank’s contentious 12 February 2018 circular on stressed asset resolution norms, RBI issued a revised document on 7 June 2019, with one of the major changes being the introduction of a 30-day review period for large borrowers who have not paid interest to lenders by the due date. This, as Mint reported on 15 April, was suggested by the banking lobby IBA.
Lenders have been warming up to the governor and RBI’s new approach because Das not only speaks to them at regular intervals but also implements many of their suggestions. For instance, the decision to make banks link their loan rates to an external benchmark was met with a lot of resistance from bankers, who wrote to the regulator (then under former governor Urjit Patel) citing concerns in 2018. However, Das in April 2019 postponed the move and said RBI will hold consultations with stakeholders on it.
Das is the latest in a long line of career bureaucrats to be appointed as RBI governor— the others being R.N. Malhotra, S. Venkitaramanan, Y.V. Reddy and D. Subbarao.
Two days after joining as governor, Das met bankers where they pitched for a review of RBI’s prompt corrective action norms. “The governor took time to listen to our issues and also sought our views on what could be done," a public sector lender present at the meeting said.
Amid the chorus of ecstatic bankers and even happier industry lobbies lauding this “consultative" approach, it is yet to be seen how effective these committees will be in addressing the problems they are meant to.